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New Guide Assesses Managers’ ‘Climate-Voting’ Credentials

Asset owners call for greater transparency on climate-related processes and policies to inform engagement during 2021 proxy voting season.

Asset managers have been urged to provide more detailed documentation around voting on climate issues at the AGMs of investee companies, including the publication of the rationale for their decisions on key votes.

In a new guide, the UN-convened Net-Zero Asset Owner Alliance says asset managers should provide institutional clients with greater “transparency, consistency and accessibility” of their voting records on climate issues.

As well as publishing voting records “in a user-friendly and timely manner”, asset managers should publicly post memos or explanations “to demonstrate the reasoning behind decisions on key climate votes that the asset manager finds representative or exceptionally important”, the guide said.

Recent engagement and stewardship reports issued by asset managers have provided increasing levels of detail on their engagements with investee companies, including voting records on climate disclosure and other ESG-related topics. However, information on underlying processes, including the reasons for individual voting decisions, has been less easy for asset owners to obtain.

The call for greater transparency by the Alliance, which represents asset owners with US$5.5 trillion in assets under management, comes in a four-pillar guide designed to help asset owners ensure they select and work with asset managers with compatible voting policies on climate-related topics.

As well as transparency on voting records, the other three pillars cover governance of voting, alignment with long-term interests and merit-based evaluation of climate-relevant votes. The guide suggests that asset owners should seek to understand the processes and structures underlying votes on climate issues, including the roles of committees and staff, as well as third-party inputs, in identifying and evaluating climate votes.

It also says that asset owners should seek to ensure managers’ climate votes are in line with a clearly documented policy and that voting should be based purely on the merit of the individual proposal. Asset managers should not, it says, vote against a shareholder proposal as a result of a “productive engagement” with management, nor use a climate proposal “as an escalation tactic”.

The Alliance, members of which committed earlier this year to reducing portfolio emissions by up to a quarter over the next five years, defines climate voting as “proxy voting wherein the consideration of climate factors affects the outcome of an asset manager’s voting decision”.

“Recognising that properly representing our long-term interests through proxy voting is a key element of the asset owner-asset manager relationship, the Alliance offers the following foundational guidelines for asset owners to construct their own expectations of their asset managers’ proxy voting approaches,” the Alliance wrote.

The document follows a series of workshops by the Alliance, held to help members integrate the principles into their own proxy voting and asset manager selection, appointment and monitoring processes.

Johanna Köb, Head of Responsible Investment at Zurich Insurance, said her firm had recently updating its proxy voting policy in line with its net-zero targets. “Climate-smart active ownership is an important tool for investors to enable the transition to a carbon neutral economy, which in turn also supports decarbonising investment portfolios. This new guide entails valuable tips to structure net-zero aligned proxy voting and engagement policies,” she said.

“Asset managers have an important role to play in addressing both climate risks and opportunities, however, at the end of the day, they manage money for others and therefore alignment around the long-term interests of their clients and beneficiaries is essential,” said Fiona Reynolds, CEO of the Principles for Responsible Investment.

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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